Bank Failures Explained: Questions, Answers and How CRE Fits In

QUESTION TWO

How common are bank failures?

ANSWER

Very common. Since 1934, there have only been five years in which a single bank hasn’t failed: 2005, 2006, 2018, 2021 and 2022. It would be more unusual if there were no bank failures in any given year, but you typically don’t hear about them. This is because the FDIC and regulators have a process for an orderly resolution, such that the failing bank could be acquired by another bank, or if that is unable to be brokered, the FDIC ensures that (insured) deposits are made whole, and the FDIC then sells the failed banks’ assets. It’s not headline news most of the time. Bank failures aren’t rare, but bank runs are . What we observed with Silvergate, Silicon Valley Bank (SVB) and Signature falls into the “bank run” category which is when bank customers flock to banks and make withdrawals because of the loss of confidence in the bank. Moreover, the recent bank failures had a few unusual features. First, in the cases of Silvergate and Signature, underlying losses in the value of cryptocurrency served to act as a deposit outflow prior to outright withdrawals happening. Given how new cryptocurrencies are, there have not been episodes quite like those before. Second, all three occurred at a time when the U.S. economy was still creating lots of jobs and unemployment remained historically low. There are many other aspects about the recent bank failures that are quite different relative to historical analogues, which we will discuss within this larger FAQ document.

Bank Failures Explained - Questions, Answers and How CRE Fits In

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